Is it better to lease a car or buy one outright?
Buying a new car, especially if it is a personal purchase, is likely to be the second most expensive purchase you’ll make, after your home. It’s not surprising then that it makes sense to explore the options you have in acquiring such an asset. If you're buying a car for your company to use, then there are a range of considerations to make too.
Typically, whether the car is a business purchase or personal, one can either buy a car outright or look at the various lease schemes available from car dealers. Of course, how you choose to fund an outright purchase also makes a difference, such as cash from your business’s profits, personal savings if buying for yourself, or a bank loan.
In this article, we’ll look at both personal car purchases, since we assist individuals with their own tax and wealth management issues, and a company car purchase, to highlight some of the main pros and cons between outright purchase and a lease hire arrangement.
If you are in the market for a new car, here are a few questions to consider first:
- Will it be a company car or for private use only?
- Will it be a conventional petrol or diesel engine, or will it be electric?
- Will you be buying it or leasing it?
- If it’s a private vehicle purchase, will you want to use it for business purposes?
The answer to these questions will help shape the importance and relevance of the information we aim to share in the following article.
Let’s consider purchasing a new car for personal use as many of the financing options are relevant to those available if you are buying a car for a business, However, if you are buying a car for business, then it would be a good idea, in addition to the company car section in this article, for you to read our article on:
“Is it worth buying an electric company car?”
This article explores the business advantages and taxation associated with electric vehicles for company use. It also discusses some of the benefit-in-kind (BiK) issues that surface where company cars are concerned.
What is the basic difference between owning and leasing a car for personal use?
There are two basic routes to putting a new car on your driveway:
Personal contract hire: This is the most typical method of leasing a vehicle, but you never actually own the car.
Outright purchase: You own the vehicle outright or at the end of any financing agreement.
What is personal contract hire?
Personal contract hire or PCH, is a long-term leasing arrangement with a car leasing company. It’s a convenient way to enjoy the experience of a new car without having to stump up the high cost of purchasing one outright. The monthly payments are typically much lower than the financing costs associated with a purchase. This is because you don’t get to keep the car at the end of the agreement period. If you buy a car outright, when you come to sell the vehicle, there will be a resale value to help recoup some of the costs or ownership. So with PCH you are essentially just renting the vehicle and will simply hand it back at the end of the term - assuming it has been well looked after. Also, there may be restrictions on how many miles you can drive in a year.
The other potential benefit of PCH is that some packages include servicing and maintenance. Sometimes they may throw in tax and insurance too, so shop around!
What options exist for outright purchase
By outright purchase, we simply mean that at some point during your financing arrangements, you actually own the car, as opposed to just renting it as with PCH.
First though, why would you want to own your own car?
Most people buy their own car because they are likely not buying a new car. There are many great deals to be had for cars that are just a year or so old, as new cars tend to suffer high depreciation in the first few years. So, you get to enjoy many of the benefits of a relatively new and up-to-date model and a much lower cost*.
Owning your own car means you get to do what you like. You’re not worried about how many miles you drive it or any additions you may make. And, you get to decide whether to keep it for life or sell it the next day. You're not locked into any contracts.
Also, a personal purchase is just that - personal. Buying outright means you’ll have complete freedom as to what vehicle you can buy, as not all models are available for PCH schemes. This opens up the door to more unusual or exotic options, if that’s what your budget or taste demands.
Lastly, you own it, nobody else, it’s yours. For some, that’s a very important factor and an experience that sets you apart from others, if that’s important to you.
There are a number of ways you can finance the car ownership experience.
A cash purchase
If you buy a new car with cash, you may be able to negotiate on price with a dealer, especially if new models are close to hitting the streets.
The main disadvantage is that your purchase will most probably depreciate in value. When you come to sell it, you’ll likely get a lot less back.
The other aspect to consider is ‘cost of ownership’. Buying a car and owning one are two different matters. When you own a car, you have to service it, maintain it, tax it, and insure it. These costs can be considerable each year. Then there’s the actual cost of fuel, but then all cars have that cost.
A loan from the bank
It can be a good option for some, especially if you have a good credit rating and interest rates are favourable. You may also be contributing to the cost of the vehicle, which means you may not need to finance the entire cost of the vehicle. Personal loans are typically unsecured, in other words, they don’t require collateral to loan against. In the case of financing a car, the purchase itself becomes the collateral, i.e. if you don’t pay, they’ll take it away!
The main cost associated with a bank loan is the interest payments. At the end of the loan period, you will have actually paid substantially more than the list price of the vehicle; but then, that’s the price of convenience.
Hire purchase - HP
Hire purchase is probably one of the most recognisable forms of financing. HP is probably what got most families through the 60’s and 70’s. HP allows you to spread the cost of the purchase over an agreed timeframe with regular monthly payments - the longer that is the lower the payments. However, you’ll also be paying interest, which increases the total amount paid. There’s usually also an initial deposit and likely a small fee to pay at the end to take ownership of the vehicle. You’re then free to do with it as you will, such as selling it to recoup some of the costs and perhaps buying another vehicle.
Personal contract purchase or PCP
This is a somewhat different form of hire purchase. Both schemes share an initial deposit and the ability to pay in monthly installments over an agreed financing period. The main difference with PCP is that you are only funding the predicted difference between the purchase price of the vehicle and the residual value at the end of the term. This means that the payments will be a lot less, but then you don’t own the car. However, PCP gives you an option at the end of the term:
- Make a final ‘balloon payment’ at the end of the period and take outright ownership, or
- Hand the car back, make a new agreement and buy another car, or walk away.
The cheapest option, if you have cash, is to use cash. The downside is that the ‘liquid’ assets you may need at some point are now reduced. If you need cash in the future, you may have to sell the car quickly and take a hit but not get the best deal.
If you don’t want to use your cash, keeping that for a rainy day, the convenience of low payments, and the option of ownership at the end of the term, PCP may be a good choice. However, if you want to own your car, HP is likely a cheaper option as you are actually contributing to the cost of the purchase over a potentially longer or convenient period
What is the difference between owning and leasing a car for company use?
At some point or another company owners, especially those of smaller firms, give thought to the possibility of buying a new car through their company. After all, why not? Let the company use its profits that you’ve worked long and hard for rather than your taxed dividends or salary. Sounds simple, but of course, the government has thought of that too and so it’s really not that simple. How you plan to use the vehicle in your business has major tax implications for the business and potentially for you too.
Main considerations
For most businesses, cash flow is the lifeblood of the organisation's operation. Without a ready supply of cash to finance day-to-day operations, the company will fail. As such, how the company finances the purchases of its assets is of paramount concern. Of course, cash-rich companies can consider outright cash purchases, especially if the asset is likely to have a reasonable residual trade value. With cars though, ownership is not the goal, sensible financing is.
Leasing, loans, and tax relief
For most companies though, leasing a car is the preferred option. A vehicle lease represents fixed monthly payments over an agreed term. The packages may also include all maintenance and servicing. At the end of the term, the vehicle is simply returned and another one is provided if the contract is continued.
When leasing a vehicle, a business can reclaim VAT back on 50% of the monthly payments, depending on how it is used.
Some companies may still prefer to buy a vehicle. As such, when you take out a loan to finance the vehicle, you can get tax relief of up to 45% on the interest. However, if the car is used for both business and personal use, the amount of relief will be reduced proportionally.
Other allowances
However you decide to finance the purchase of a company car, how you use the vehicle will dictate how you will be taxed and what relief you can claim back.
An important point to note is that under section 38B of the Capital Allowances Act 2001, the cost of a car does not qualify for the AIA. If the car is for business use though, you can use the Write Down Allowance or WDA to deduct a portion of the cost from your company profits.
How will the vehicle be used?
It’s important to point out right away that VAT on company cars can only be claimed back if the car is a genuine pool car and not used for personal use in any way. You’ll have to go to some lengths to prove this too.
VAT aside, a company car purchase represents an asset. As such there are costs you can reclaim each year.
1. Write down allowance (WDA): WDA allows you to claim a percentage of the cost of an asset such as a car each year against profits over a number of years. How much depends on how ‘green’ your car is. In other words, CO2 emissions.
If your car is used as a pool vehicle and has CO2 emissions of less than 110g/km, then it qualifies for an 18% relief as part of the main rate pool allowance.
If your car is above 110g/km, then the rate applied is 8%.
Single asset pool
If the vehicle is a pool vehicle but is also used for both business and personal use, then it has to be allocated to a “single asset pool”. Depending on the CO2 emissions, it will be allocated at a rate of eight 8% or 18%. However, because the vehicle is used for personal use, this rate will be reduced to reflect the percentage of personal vs business use.
Furthermore, the personal use of the vehicle means that an employee is receiving a benefit in kind (BiK).
2. The running costs of a company pool car can be claimed. These include:
- Fuel
- Servicing
- Maintenance
- Road tax
- Insurance
Talk to TaxAgility about the purchase of your next company vehicle
Buying a new car for personal use is simply a matter of choosing the finance method most suited to your finances. If you plan to use your vehicle for business use too, then there’s a clear path as to how you can claim back expenses associated with this, such as mileage claims. We can assist you at the time of your tax return preparation and ensure you are claiming the correct amounts.
Where we can really assist is when you want your company to purchase a vehicle for business use. It’s here that we can discuss your needs and what you hope to purchase, and then what allowances may be available and other claims you could make. We can also advise on the implication of you as a director using the vehicle for personal use, along with the associated implication of it being a ‘benefit-in-kind (BiK).
So give us a call today on 020 8108 0090, and find out how we can help with the next purchase of a company car.
*Note: due to disruption in world trade and the supply of essential parts such as semiconductors and raw materials caused by the Covid pandemic and the Ukraine conflict, many manufacturers have had difficulty in producing new vehicles at the rates previously enjoyed. This has led to a significant increase in the price of second-hand vehicles. For some luxury brands where waiting lists are normal, the cost of a relatively new second-hand vehicle can often be more than the list price of a new vehicle.
Buyers of such vehicles should therefore be aware that should trade and manufacturing return to near normal levels, i.e. pre-covid, then it is likely that their ‘expensive’ second-hand purchase may depreciate as quickly as a new vehicle might.
Working from home and claiming tax relief on expenses
As more of us are now working from home, more often, because of the recent impact has had on businesses and attitudes concerning the practice of working from home, how can employees be reimbursed for the extra expenses they incur working from home, and what exactly can they claim for?
It comes as no surprise to find that many of us have had to work from home over the past couple of years. While in most cases this was forced upon us, it has had a significant effect on the attitudes of employers towards this practice.
Many employees have found it beneficial, as indeed have some employers, and want to continue, at least for part of the working week. Working from home imposes a range of costs on both employer and employee that prior to the recent pandemic, haven’t drawn that much attention. So when employees spend a considerable part of their work time working from their own home, how much of the extra expense can they claim, and what exactly is claimable?
What types of working from home expenses are we talking about?
Enabling an employee to work effectively from home requires more than a little thought and planning, there are real costs and expenses to consider. These may include:
- The cost of a laptop or other computer
- An internet connection
- A printer
- Printer and general office consumables
- A home office space and furniture
- Heating
- Lighting
- Telephone / mobile phone
Most people typically discover that while working from home can be a great convenience, their household bills start to increase, especially if normally both adults are at work, working the typical 9 to 5 office shift.
Then there are other considerations that are often forgotten, issues such as insurance come to the fore, personal and for additional equipment. Also, can an employee now claim expenses for a trip to the employer’s office?
Reimbursement vs tax exemption
It is important to understand how expenses are treated for tax purposes.
Reimbursement
If, as an employee, your employer reimburses the expenses you incur as a part of your job, HMRC must be satisfied that:
- No matter who did the job, the expense would have been incurred.
- It was necessary to perform your job.
- It was incurred in the performance of your duties.
- It was incurred and paid back to you.
- The expense was wholly and exclusively for your work.
If HMRC isn’t satisfied, you’ll run the risk of expense payment being treated as additional income and be taxed accordingly.
Tax exemption
If your employer doesn’t reimburse you for expenses incurred during the performance of your duties, you may be able to claim these against your income. That may be the case if for example your employer doesn’t reimburse you for the additional expenses of working from home. You must be able to prove, just like reimbursed expenses, that they were purchased wholly and exclusively for your job.
If this is the case then your expenses can be claimed against your income. For instance, if you earn £30,000 and you incur £5,000 of expenses, you will only pay income tax on £25,000.
Some common questions about claiming working from home expenses
Implications exist for both employers and employees where claiming expenses related to working from home are concerned. Let’s look at some of these.
Can employers reimburse homeworkers for their household expenses tax free?
The simple answer is ‘yes’ an employer can reimburse its employees when they work from home with your full agreement, provided they are ‘reasonable’ and provided that the employee working from home is a regular occurrence.
HMRC allows different levels of payment to be paid free of tax and national insurance without supporting evidence. For weekly paid employees, this is up to £6, and monthly paid employees can expect £26 a month.
Can an employee be reimbursed tax free for working expenses greater than these figures? Again, yes. However, you must be able to prove that the payments are wholly in relation to ‘reasonable additional household expenses’ and that you have supporting evidence to this effect.
When employees are given equipment for home use, is there an income tax charge?
Income tax charges for this type of expense usually arise because the equipment concerned is also being used for personal use. As such it’s considered a benefit and tax arises as a result. So, if the equipment is supplied and owned by the company and supplied for business use, not personal use, then a tax charge will not arise. The other condition is that this ‘benefit exemption’ is offered to all employees with similar employment terms. The equipment must also be returned when the home working ends or when an employee leaves, if not a chargeable benefit will arise.
[Learn more about how benefits in kind are treated by HMRC here]
If an employee purchases their own home-working equipment, can we reimburse them tax free?
As a consequence of Covid-19, there was a government scheme in place up to April 5th 2022 that allowed employees to be reimbursed tax free for home-office equipment purchases, provided the same benefit was available to other employees in a similar role. This has not been extended beyond April 6th 2022.
Can homeworkers claim tax relief on household expenses?
Yes, because not every employer will cover the cost of an employee working from home. However, there are limits. Firstly, just like an employer reimbursing employees for home use, it has to be fully justified as an expense incurred wholly, exclusively and necessarily in the performance of their duties. Usually this is difficult to achieve as the employee should not have had a choice to work from home - i.e. it was forced upon them by the employer. If they did have a choice in the matter, then this would not be allowed.
However, because of Covid-19, an employee can now claim the same weekly £6 or monthly £26 allowance through their Government Portal for tax years 2020/21 and 2021/22. This claim is possible even if the employee was asked to work from home on a single day in either tax year. For a person on the basic tax rate of 20%, they are able to claim £6 per week which equates to £1.20 per week, or £62.40 per year. 40% taxpayers can claim double this.
Again, it is possible to claim more, but as ever, complete records demonstrating the authenticity of the claim must be kept and be justifiable.
If an employee works from home can they claim tax relief on travel expenses for trips to the office?
This is a difficult and complex area. It requires the definition of what is an employee's permanent workplace and temporary workplace. It also depends on whether the employee is permanent or part-time.
HMRC considers a permanent place of employment that location where an employee attends in performance of their duties. Regular relates to the frequency of attendance or pattern of attendance. This means that going to the office everyday is a requirement, a visit once a week, fortnightly or monthly, may apply.
On the other hand, HMRC considers a temporary workplace a location an employee attends while fulfilling a temporary role or one of limited duration. If an employee spends more than 40% of their time at one location over a 24 month period, HMRC will consider this as a permanent workplace.
So, if an employee ordinarily works from home full-time and is required to travel to the office, the employee can claim unreimbursed expenses tax free - provided the travel is not made regularly, else it may be considered that the office is the permanent place of employment.
Accordingly, if an employee shares their time between two locations, such as a home-office and their real office, HMRC will consider this as ordinary commuting between two ‘permanent’ places of work.
Can you backdate working from home allowance?
Yes, HMRC will accept backdated claims for up to 4 years.
Am I eligible for working from home tax relief?
Yes, provided you had no choice in the matter and your employer asked you to. Then you can claim £6 per week / £26 per month (monthly workers).
Note that you cannot claim this allowance if your employer reimbursed your expenses for doing so or paid you an allowance.
How do you claim payment for working from home?
You can make a claim if you have a government portal account or through your regular SA100 tax return.
Record keeping
Making expense claims is one thing, making sure you have the evidence to support them is quite another. Most employees are used to claiming ad-hoc expenses from their employer, such as when they attend an off-site client meeting, attend a trade show, stay overnight somewhere or claim subsistence expenses. When it comes to claiming expenses that relate to the use of your home, HMRC quite naturally regards these claims with little more skepticism.
It’s essential that you keep accurate documents in relation to what you are claiming. If you are claiming for heating that you might ordinarily expect not to have to pay because ordinarily you work in an office from 9 to 5, then make sure you apportion a reasonable amount of the bill. Don't, for instance, claim for heating your entire house when in reality you’re using just one room.
When you’re unsure, talk to a tax expert like TaxAgility
Personal tax addition can be a complicated area and making claims for expenses if not properly validated and justified, can lead to serious consequences with HMRC. If you have any doubts or would like a tax expert to help you in making claims for tax relief, call TaxAgility today on: 020 8108 0090 and speak to one of our personal tax experts.
Employee benefits in kind, the P11D and what employers must report.
Attracting and retaining valued employees is not at all easy these days. One way employers like to try and ‘sweeten’ their employment packages is through benefits such as, private healthcare schemes, company vehicles to the humble mobile phone, but these have tax consequences too.
Why have benefits-in-kind (BIK) become such an issue?
You might wonder why in a time where employees find it increasing difficult to retain valued staff, why the Government is slowly making it unattractive to provide these benefits? The simple reason is that some companies have chosen to use this route to reduce their own tax bills by offering more benefits while providing lower salaries. Lower salaries mean less National Insurance and Pension costs. For instance on an employee earning £30K per year, the company pays 13.8% or in this case around £2,800 and then another £716 in pension payments per year. With a lot of employees, this soon mounts up.
It works the other way too. In years past, an employee may have been able to opt for benefits ion return for a reduced salary - called "optional remuneration arrangements”. By doing this, the employee would pay less tax and national insurance.
Company cars have received harsh treatment in recent years, with the tax rate currently at 37%. The only exception, one that is becoming increasingly interesting for employees, is having a fully electric vehicle. Current tax legislation applies a zero tax rate to this type of vehicle.
So, to make benefits-in-kind a less attractive way to reduce a company’s tax burden, the government has continued to tax them.
What employers need to know about benefits-in kind and the P11D.
As an employer you’ll need to understand what constitutes a benefit-in-kind, what to report, how to report it and what the deadlines for reporting are. So here’s a recap.
What is a benefit-in-kind (BiK)?
In short, a benefit-in-kind is any benefit (perk) that an employee or director receives which is not included in their salary or wages. If you’re not sure, talk to us.
What are considered benefits?
The list of actual ‘perks’ HMRC considers as benefits is quite extensive, covering around 60 categories. You can see the full benefits list here.
For most people it comprises typical things such as private medical insurance, a company car, child care, expense allowances, clothing, mobile phones, home use, fuel for personal cars, etc.
Mistakes are often made and employers / employees which can land them in trouble, such as when a director has overdrawn the director’s loan account by over £10,000. As this is deemed a loan, interest is due. Also, it’s very easy to forget about work related calls made from personal devices, such as a home phone or mobile and where this has been claimed back by the employee.
If you are not sure about any potential benefit you are giving or receiving, check with a knowledgable accountant like Tax Agility first.
How to Report Employee Expenses and Benefits
Employee expenses and benefits need to be submitted at the end of each tax year using form P9D or P11D, depending on the expense or benefit in question. The Government has provided a detailed list of common expenses and benefits online, clicking through to each of which will tell you which form you need, and how you should calculate what you owe.
You’ll need to submit a separate form for each employee; so if, for example, two full-time employees are provided with a mobile phone each for work, you’ll need to complete a separate P11D for each employee. If you submit a P11D you’ll also be required to submit a P11D(b), reporting what Class 1A National Insurance is due on your expenses and benefits payments. You can complete an online declaration if you didn’t submit a P11D, to ensure HMRC won’t contact you about it.
All forms should be filed through either HMRC’s PAYE Online service, your own payroll software, or by downloading the form online and posting it to the address you send your paper tax return to.
If you under-report on your employee expenses and benefits and, therefore, pay less tax than is required of you, you’ll likely be charged a penalty by HMRC if they believe your under-reporting to have been deliberate or due to carelessness. You may be asked to show evidence of how you accounted for each expense or benefit; records must be kept for three years.
PAYE Settlement Agreements
What are PAYE Settlement Agreements? It’s common for some employees to have to claim for small and infrequent expenses or benefits - perhaps a bond or reward for service or performance in a year, or a business trip claimed by the employee. These can be a pain to have to report separately. So, if you only pay small, irregular, and impracticable expenses or benefits to your employees you can simplify your tax and National Insurance Contributions by applying to receive a PSA so you only have to make one annual payment to cover all and any payments owed. Checkout our other article on PAYE Settlement Agreements (PAYE Settlement Agreement)
Are there any exemptions to benefits-in-kind?
The recent pandemic may have people asking this question, especially if they are using company cars. If your vehicle was not used for 30 days or more, you may be able to apply for an exemption. However, as with many things related to HMRC, you may need to be prepared to prove this.
As an employer, you generally don’t have to report typical expenses such as the following, provided that you are either paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC, or paying back the employee’s actual costs.
- business travel
- phone bills
- business entertainment expenses
- uniform and tools for work
Calculating Employee Earnings
Each employee expense or benefit will need to be calculated at a rate. The Government recommends you do this by adding the value of all expenses and benefits an employee has received over a given tax year to that of their annual salary (if they haven’t worked a full year with you, calculate the full-year equivalent of their salary and all expenses and benefits received).
When to report to HMRC using your P11D?
The deadline for submitting your P11D and P11D(b) is the 6th July after the end of the tax year. For the 2020/2021 tax year, for instance, the deadline is 6th July 2021. You must ensure that copies of the individual P11d forms are given to each of your employees by this deadline.
Class 1A National Insurance payments must be submitted by is July 19th or the July22nd if you are paying online.
Experienced P11D Tax Accountants
To speak with a professional to discuss whether you need to start paying tax on your employee’s expenses and benefits, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation consultation.
Small Business: Planning and optimising your workforce
The aim of workforce planning is to align your people strategy with short-term changes and long-term goals.
As dedicated small business accountants in London working with entrepreneurs from various sectors, we have the privilege of meeting driven small business owners to exchange ideas and share knowledge. One of the topics that crop up regularly in discussions is human resources. Specifically, how does an entrepreneur know when it is the right time to hire and how to go about planning and managing employees effectively.
Successful small business owners, we find, tend to have a workforce that can meet two objectives. Firstly, the workforce is efficiently managed to meet short-term changes which may be related to growth (hiring more staff as you get more clients), decline (having less staff as clients leave), or when there is an increase in competition (having versatile staff who can achieve more with less), to name but a few.
Secondly, smart small business owners also have a long-term plan with specific goals. The plan tells them when they need the right people with the right skills at the right time.
In essence, we view workforce planning as a systematic way to identify what skills are needed, how to find the right people for the right job, and what alternatives are available to address gaps or skill mismatches. As this is a highly fascinating subject, we look to explore it more in this article and see how workforce planning can benefit us all.
When it is time to hire
Should you hire someone because you have just received a new contract? The answer depends on the situation you are in. In general, you know it is time to hire someone when:
- Your current workforce cannot cope with the workload or does not have the necessary skills to cope.
- You can generate more money if you hire someone.
- You have calculated the costs and you are certain that your business can afford it.
- The people you hire can support your long-term business goals.
In other words, before hiring, you must understand your current workforce capacity, you are aware of any skills gap in your company, you know how to get the most out of your (current and future) employees, your decisions are guided by financial data, and most importantly, you never lose sight of your future goals.
Labour cost is an area that is worth mentioning. In the UK, employers are required to pay salaries, National Insurance and pension contributions. In addition, business owners also need to spend time and money training the person, as well as offering staff benefits like paid holidays, sick pay and gym membership, to name but a few.
Finding the right people for the right job
Every small business owner is keenly aware that hiring the right people is vital for the success of your business but finding the right people can be challenging. Here are a few good tips that may resonate with some small business owners:
Look for a team player
In many small businesses, employees are required to work cohesively on a project or several projects at once. In this case, look for a team player who is genuine, committed and supportive.
Long-term potential
Job-hopping may be on the rise but it doesn’t mean that companies like it – because turnover is disruptive and it costs money. Look for traits of commitment, particularly if the new hire is vital to your future workforce needs.
Skillset
Test the candidate to make sure they have the ability to perform the tasks required. You can test both technical and soft skills. Technical skills are related to a particular occupation. Soft skills, on the other hand, cover a wide spectrum of traits that shows how one interacts with others.
Getting the best out of your employees
Small business owners know that working longer hours does not necessarily mean more productive or increased efficiency. To get the best out of your employees, a few useful tips include:
- Make it clear what you and the business want from them.
- Encourage them to take responsibility for their actions; show them how their efforts are tied into the bigger picture or the overall goals of the business.
- Create a culture that promotes honesty and strong work ethics.
- Incentivise them when a milestone is achieved. This can be something small like taking them out for a meal or something substantial like cash bonuses.
- Train and develop people who are keen to contribute. Show them how they can achieve career progression within your organisation.
- Provide mentorship, particularly to young workers. Mentorship involves one-to-one discussions that focus on transferring knowledge and connecting at a deeper level.
Alternatives to address skills gaps
It is highly common for small business owners to hire new employees to address skills gaps, but alternatives such as hiring contractors and upskilling current employees should be considered too.
Hiring contractors or freelancers is definitely something that can benefit small business owners as the advantages are obvious:
- It is usually (but not always) cheaper to hire a contractor as you don’t have to pay National Insurance, pension, and benefits.
- Areas of expertise such as database management and cybersecurity are best left to specialists who know what they are doing (unless your business is based around these disciplines).
- You can respond to market changes quicker by hiring or letting go of contractors with short notices.
- Contractors have their own insurance to cover for all eventualities.
For more information, follow the link to the article Hiring specialist contractors can reduce SME costs.
Another effective way to address skills gaps is to train your existing staff. Research has shown that upskilling can improve employee job satisfaction and engagement. There are various methods to develop skills, including:
- On-the-job training
- Accredited or non-accredited training
- Attending special industry events
- Mentoring and coaching
Don’t forget payroll and benefits
Although studies have shown that employees may not be necessarily motivated by money, every employee still expects to be paid fairly, satisfactory and on time. They also look for benefits like paid holidays, gym memberships and other goodies.
While it is essential to make the pay package attractive to your employees, you also need a robust payroll team in place to calculate individual payslip and deduct PAYE, National Insurance, pension and other items like student loans, along with handling ad-hoc items like bonuses and commissions. But having an in-house payroll team is expensive – fortunately, this is where the outsourced payroll services from Tax Agility can help.
Our complete payroll services are designed for small businesses, helping small business owners like you to manage the payroll function and compliance. We can take over the entire payroll process, help with ad-hoc payroll exercises, manage TRONC Scheme Management for restaurants, bars and hotels, as well as keeping you informed of any changes to the payroll regulations.
Tax Agility promotes small businesses
At Tax Agility, we are chartered accountants specialising in small businesses across London. We’ve helped many entrepreneurs grow from a one-person business to a successful enterprise with dedicated teams in place.
Our services to small businesses in London, Putney and Richmond-upon-Thames include:
Management consultancy is an area worth mentioning if you are looking to grow your business substantially in the near future. At its core, management consultancy is about analysing the financial data of your company and allowing you to use the data to make informed decisions that spur growth.
If you would like to know more about what we can do to help your business – be it to support your bookkeeping, provide tax advice, manage your payroll services, or work with you to grow your business – get in touch by calling 020 8108 0090.
Alternatively, you can use the contact us form to get in touch.
You may also like:
- Small Business: 5 ways to get new customers
- Small Business: How to attract investors
- Small Business: Managing business risk
- Small Business: The benefits of long-term planning
- Small Business: The benefits of networking
- Small Business: Simplify marketing to increase sales
- Small Business: Planning and optimising your workforce
- Small Business: Win customers with a strong online presence
- Small business: Gain competitive advantage through outsourcing
- Small Business: Delivering excellent customer service
- Small Business: Adapting to changes in social media
- Small Business: Use technology to your advantage
- Small Business: Protect your business against fraud
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
Small Business: Motivating your employees
The performance of your employees has an impact on your bottom line and here are 11 useful tips that can help.
Numerous studies have suggested that highly engaged employees are more likely to exceed performance targets and achieve success. As not every employee shares the same personality type and not everyone is motived by the same incentive, how you should go about motivating your employees is an interesting subject worth discussing.
Why do employees work?
Before you start providing incentives to your employees with an aim to motivate them, it is worth asking the question – why do they work and most specifically, why do they choose to work for you at this point in time?
Undeniably, the need for financial security plays a big part but it is not the whole picture. Factors that lead employees to show up for work may include:
- This is a place where they belong
- The job may be a reflection of their self-worth
- The work may be fulfilling and rewarding
- They may enjoy exerting control
- They may like to be challenged
If you are interested in delving deeper, both Maslow and Herzberg have theories of motivation and the internet is flooded with articles about these two scholars which can help you to understand human needs.
The idea is that once you have profiled each person and their traits, you can then start to personalised motivation.
11 effective methods of staff motivation
Individualised motivation
Individualised motivation is a scientific step that can help to motivate individuals to the maximum of their abilities. To do that, you must first understand their individual needs.
Create a safe working environment
Under the health and safety law, business owners must provide a working environment with little or no risks to the health and safety of their employees. That aside, most people tend to prefer working in an office that is quiet (particularly in an open-plan office), tidy, well-lit, has adequate ventilation, has access to clean drinking water and toilets, as well as has sufficient work areas where they can perform the work comfortably. If your office environment ticks all the points above and they are important to an employee, then you will have a happy and engaged employee.
Create a positive office culture
Creating a morale-boosting office culture does not always mean providing free doughnuts and coffee. In this instance, we are talking about projects that have an impact on the wellbeing of your employees, their relatives or even strangers. For instance, having a scheme that allows extra holidays if an employee needs to care for a sick relative or a project that involves your staff to help out those less fortunate in your community.
Listen to your employees
No one likes to be ignored. Be an active listener to your employees and allow them to share ideas, ask questions, or discuss anything that is important to them. When they speak, give them your full attention and maintain eye contact. If they are giving you an idea that will help your business, let them know accordingly.
Have a dialogue
The other side of listening is sharing. Talk to your staff frequently, involve them in your company vision and tackle any potential issues that may lead to disengagement.
Set meaningful goals
Believe it or not, most people actually love a challenge so using goals to motivate employees are not new. The crux of the matter is the goals must be meaningful – while they can be challenging, the goals should be attainable if one puts in the appropriate time and effort.
Timely recognition
When a job is done well, a sincere thank you, positive feedback or a token of appreciation often will make the employee feel positive and appreciated, though it must be done soon following the task rather than a few months later.
Social recognition
More and more companies are using social media to give a shout out to their star performers.
Encourage learning
We live in a world that is constantly changing, primarily shaped by the evolution of technology, globalisation of commerce, social and political landscape, among other factors. To help make your business more agile and competitive, encourage your employees to keep learning and challenge themselves.
Promote from within
Most employees like to progress as an individual and as an employee. When there are new opportunities, consider to promote from within and create a smooth transition.
Build trusting relationships
Relationships often outlast companies so it is wise to invest time and effort to build strong relationships with your staff.
Tax Agility supports small businesses in London
Every small business owner knows the importance of having motivated employees. At Tax Agility. While our small business accountants may not be able to help motivate your staff specifically, we can help you tackle your accounts, bookkeeping and tax issues, giving you peace of mind so you can concentrate on running your business and providing motivators that matter to each individual staff.
We provide the following services:
- Accounting and bookkeeping specific to small business
- Tax and VAT for small businesses
- Payroll services
- Small business management consulting
Call us today on 020 8108 0090 or get in touch via our contact page to arrange a complimentary, no-obligation meeting.
Other useful articles pertaining to small businesses that may interest you are:
- Small business: 5 ways to get new customers
- Small business: managing rising costs
- Accounting tips for small businesses
This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.
Small Business: Reducing the risks associated with temp staff
Are your temporary employees fraudsters in disguise? In this article, we help you to understand and reduce the risks of temporary hires.
Whether it is hiring more baristas, cashiers, or security personal, SMEs often require extra pairs of hands at certain times of the year, such as during the summer months and during the festive season in November and December.
The four weeks leading to Christmas are particularly intense for retailers and eCommerce site owners. Constant streams of sale hunters and shoppers fuel sales and get the cash register ringing, to cope with increased demand, business owners often turn to temporary or seasonal employees. However, doing so brings potential risks that small businesses must be aware of.
What are the risks of hiring temporary staff?
Poor loyalty and performance – Often tied to a fixed-date employment contract, temps may lack the loyalty and dedication of permanent employees. With a leave date in a few weeks’ time, temps are less likely to take pride in their work and may perform poorly. As a result, they can become a liability.
Undertrained staff – Temps require training in order to fulfil their job function. Incomplete or poor training leaves temps unable to meet the required standards and therefore, reflects poorly on your company.
Illegal workers – Never rush the hiring process. With the influx of illegal immigrants in the news, businesses in London must ensure that they only employ those with a right to work in the UK to prevent company losses and bad press. Businesses can be charged up to £20,000 per illegal worker under their employment, which can be devastating and hurt your bottom line.
Internal fraud – Small business owners must understand the danger of internal fraud. Fraudsters can pose as temporary employees in order to steal your inventory or to access business data for their own financial gain.
Those seeking to infiltrate businesses in the disguise of a temporary employee pose a serious risk to all businesses looking to hire. According to Action Fraud, internal fraud cost UK businesses £88 million between 2017-18, double the figure for the year before.
Why are small businesses particularly vulnerable to internal fraud?
Often lacking resolute accounting controls, effective anti-fraud measures, suitable technology and enough staff to split financial duties evenly, SMEs present a natural target for fraudsters to make a quick buck by deceiving the owners and employees. Their tricks include:
- Tricking the company into paying them a large sum of money by using fake invoices or a fraudulent identity.
- Stealing stocks. They may after high-value items or items that are small and easy to conceal.
- Stealing sensitive data and sell them on the black market.
- Taking control of the system remotely and ask for ransom.
When it comes to accounting fraud, business owners also need to keep a lookout for:
- Billing fraud – creating false payments to oneself.
- Cash theft – pocketing the money instead of registering cash transactions.
- Expense reimbursement fraud – claiming embellished or false expenses.
- Bribes and kickbacks – paying others for company information or favours.
How to reduce the risks of temporary hires
As a small business owner, you can take steps to reduce the risk of hiring temporary staff and keep your business safe.
1. Pre-employment background screening
Screening potential employees reduces the chance of hiring criminals or fraudsters. Don’t cut corners – it’s crucial that employers screen temps as if they are applying for a full-time position. We recommend you:
- Run a DBS check to check for criminal records. Go to the gov.uk website for more information on these.
- Obtain references from previous employment.
- Interview each candidate thoroughly.
- Use a DISC (Dominance, Influence, Steadiness and Compliance) personality test which can help to reveal typical behaviour.
2. Hire from current employee referrals
Hiring temps recommended by current employees can minimise the risk of hiring fraudsters or incompetent workers. However, this can only work if your existing employees are trustworthy. Another option is to re-hire former reliable temps.
3. Provide complete training
Training temps well reduces the risk of incompetent workers in your business and enables them to perform as required, helping your business survive the seasonal demand.
4. Withhold access to important company information
Restrict access to data and stocks. Temporary employees should not be given access to the same sensitive business data as senior executives, only what they need to fulfil their job function.
5. Use Anti-Fraud measures
Small business owners must proactively look to prevent fraud and have a series of anti-fraud measures in place including:
- Employee training on how to stop fraud.
- A company handbook on fraud.
- A warning against fraud in temporary employment contracts, containing details of company expectations, as well as details of ‘fraud’, ‘theft’ and ‘bribery’ and the consequences of violating your terms.
- Reward whistleblowers who keep a lookout and report any internal fraud.
Tax Agility is here to help small businesses in London
Small businesses in London really feel the pressure during busy periods when business transactions are higher than normal. While our small business accountants may not be able to recruit temp staff for you, we can certainly relieve you from bookkeeping and accounting duties, giving you more time to focus on your business.
Give us a call on 020 8108 0090 if you need a helping hand on:
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This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.
Your guide to bullying and harassment in the workplace
Next week, November 11 to 15, is the anti-bullying week, so let’s use this opportunity to promote a safe workplace. The theme for this year is “Change starts with us”.
Bullying and harassment both refer to ‘unwanted behaviour that makes someone feel intimidated, degraded, humiliated or offended’, according to Acas (The Advisory, Conciliation and Arbitration Service). It can be obvious or subtle, persistent or isolated, between individuals or groups. It can also take many forms:
- Face-to-face
- By letter
- By email
- By phone
However, business owners must understand that there is a slight legal difference between bullying and harassment.
What is bullying?
Acas defines bullying as offensive, intimidating, malicious or insulting behaviour, an abuse or misuse of power through means that undermine, humiliate, denigrate or injure the recipient. In any business, all employees are responsible for ensuring that their behaviour does not fall into this category.
Bullying itself is not against the law, but nevertheless must be reported. It is said that one in four employees have experienced bullying or been made to feel out of place at work. These negative experiences at work often lead to stress and pressure. Accordingly, it is crucial that small business owners understand the severity of the problem and have a clear and rigorous policy in place to combat bullying and harassment in the workplace. To promote a bully-free workplace, look for the following signs of bullying:
- Someone has spread malicious rumours about certain team members.
- Someone has been treated unfairly.
- Someone continuously picks on or regularly undermines another person.
- Someone has denied other’s training or promotion opportunities.
What is harassment?
Harassment violates the Equality Act 2010, which defines it as ‘Unwanted conduct related to a relevant protected characteristic, which has the purpose or effect of violating an individual’s dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment for that individual.’
Harassment is extremely personal. HMRC characterises harassment as behaviour relating to the following:
- Age
- Sex
- Disability
- Gender reassignment
- Marriage and civil partnership
- Pregnancy and maternity
- Race
- Religion or belief
- Sexual orientation
Every business owner must be aware that because harassment violates the Equality Act 2010 and Health and Safety at Work Act 1974, it requires urgent resolution before it is being escalated to legal action.
Why small businesses may struggle to deal with bullying and harassment
Smaller businesses often face greater difficulty in successfully dealing with bullying and harassment claims than larger corporations for the following reasons:
- A lack of HR
Many small businesses lack the resources to employ a full-time HR department. Consequently, cases may go unreported as recipients of bullying and harassment may feel isolated, and perhaps afraid to speak to their managers.
- A lack of money
Should the case of harassment go to court, majority of small businesses cannot afford to pay the fees attached to legal cases. The troubles may lead them to shut down the company instead.
- Unclear policy on bullying and harassment
Small businesses are less likely to have a clear, formal policy on bullying and harassment than larger businesses.
What small business owners can do to promote a safe workplace
As a small business owner, you know first-hand that workplace bullying and harassment can lead to low morale and increased absenteeism, which in turn will lower productivity and hurt your bottom line.
To establish a high-performing team where everyone can contribute to business growth, there is no room for anyone to create hostility at work. For small business owners looking to foster a safe and effective workplace, here are a few things you can consider:
- Have a clear statement that bullying and harassment will not be tolerated and deserve to be treated as disciplinary offences.
- Provide examples of unacceptable behaviour.
- Encourage your employees to report any incidences to management right away.
If you are unsure of how to respond to unwanted behaviour, please follow the guideline above or call the Acas helpline for advice:
Telephone: 0300 123 1100
Textphone: 18001 0300 123 1100
Monday to Friday, 8am to 6pm.
How to grow your business: The human elements
Most small businesses start with an idea and not much else. As an entrepreneur starting out you have to set up everything, see through every delivery and worry about where each penny is being spent. But sooner or later the business will grow too large for you to do everything yourself, and you will need some help to bring the company forward.
A successful business is built on a strong, flexible team of staff that can face the challenges with you. This week in our “How to grow your business” series, we’re focusing on how to manage your employees to ensure that you get the best out of them.
A leader first; a friend second
There's a temptation for small business owners to want to be friends with employees, particularly in an intimate setting like a start-up. However, this will only lead to problems further down the line.
By being overly friendly with employees, you will make things difficult for yourself. You will struggle with accountability and avoid conflict because you don't want to upset your friend, even if they are actively hurting your business This is no good for you, your business or your employees.
Running a small start-up is not too dis-similar from parenthood. You're at the head of the house; it can be a loving house where the 'kids' are encouraged to succeed and where their input is valued, but ultimately it's your house, and that house goes by your rules. In a business setting, you also have a responsibility to foster the development of your employees just as a parent has the responsibility for helping their child grow. It's not about being liked all the time, but it’s about setting boundaries that are good for everyone.
Don't shy away from human resources
The acronym 'HR' doesn't exactly inspire most entrepreneurs. Some view it as yet another hat that they have to wear on their already crowded head, while others roll their eyes at such 'corporate speak' that they feel will set themselves against their small team. But here's the thing: HR doesn't need to be de-personalised, nor does it need to be adversarial. In fact, good HR should be present in every start-up because it helps to set procedures and governance.
HR starts with the hiring process. If you hire smart, you can separate out the ones that want responsibility from the ones that are counting down the hours until they can go home. If you have a team who buys into what you are doing with your start-up, then there's a good chance that they can be trusted with your responsibilities. HR can help with creating a really powerful job description that will attract people who want to work for your business, not for your money.
HR can also include training to help your team develop and grow. Team-building exercises can improve their skillset and enable them to work better with each other.
Retention is important
It’s cheaper to keep hold of existing employees than to find new ones. Recruitment is rather costly across the UK – you can spend anything from £300 on advertising costs to a few thousand pounds if you rely on an employment agency. After hiring, you need to pay national insurance, pension and equipment costs, as well as absorbing the time the new staff takes to learn and get up to speed. It can be easy to underestimate the costs, especially since they tend to go up each year, while your revenue may remain the same. If you need help with allocating your budgets to manage expenses relating to your staff, come and talk to us. We have helped many small business owners across London thrive through our small business management consulting services.
Giving your staff opportunity to grow can help to retain them. Fostering a positive environment, listening to their feedback and having constructive dialogue during one-to-one performance reviews are all things you can do to keep your employee turnover down.
Build a stable dream team
The key to effectively managing the human element of your business begins with having the right profile for the position in advance. Save yourself time, money and effort by specifying the role as clearly as you can and writing down the important attributes the person must have to fulfil the role. Don’t be afraid to look at apprentice and recent graduates either, some of them are eager to learn and be successful.
There's no doubt that the process of good hiring, training and retention techniques costs money and time, neither of which are always in abundance in many start-ups. However not following this process could cost you far more in the long run.
Business growth advice from Tax Agility
At Tax Agility, we are chartered accountants specialising in small businesses across London. We’ve helped many entrepreneurs grow from a one-person business to a successful enterprise with dedicated teams in place. If you would like to know more about what we can do to help grow your business, get in touch on 020 8108 0090 or use our Online Enquiry Form.
If you found this blog interesting, you might also like:
- How to grow your business: Investors
- How to grow your business: The benefits of risk
- How to grow your business: Long-term planning
- How to grow your business: Customer relationships
- How to grow your business: Social media
Employment Allowance Increased by 50 Percent
Introduced in April 2014, Chancellor of the Exchequer George Osborne announced in July’s emergency (summer) Budget that the Employment Allowance is due to increase from £2,000 to £3,000 in April 2016.
This full 50 percent increase is designed to help small and medium-sized business (SME) owners to reduce the cost of their wage bill and to offset the increased costs they may start to occur due to the new mandatory National Living Wage (NLW), also to be introduced in April 2016.
From next April the Employment Allowance will allow you to take up to £3,000 off your secondary Class 1 National Insurance Contributions (NICs) throughout the year until you receive back the full £3,000, or until the tax year comes to an end. You may not roll over any unused Employment Allowance to a new tax year, and you may only claim Employment Allowance for one PAYE (Pay as You Earn) scheme.
In the same Budget the Chancellor also announced that, from April 2016, if you’re the director and sole employee of your business you will no longer be eligible to claim the Employment Allowance on your own National Insurance bill.
Exclusions
You’re eligible to receive the Employment Allowance if you’re a business or charity (including, as is often the case, community amateur sports clubs) paying employers’ Class 1 National Insurance, or you’re an individual who employs a care or support worker.
There are several exclusions however, as secondary Class 1 National Insurance Contributions are known as ‘excluded liabilities’, meaning you cannot claim Employment Allowance on them if:
- - you’re personally employing somebody for household or domestic work, unless they’re a care or support worker,
- - you do more than half of your work in the public sector, unless you’re a charitable organisation,
- - you operate a service company which has only deemed payments of employment income under IR35.
How to Claim
The easiest, quickest, and arguably most efficient way to claim for the Employment Allowance is to do so through your accountant. Applying for the Employment Allowance is something your accountant will have done time and again for their clients, therefore even with the increased allowance providing a slight change to proceedings, your accountant will know how to get you started with ease.
If you don’t yet have an accountant (and you’re still looking around for the perfect pairing) you can claim for the Employment Allowance on your own behalf through your payroll software, if you have it, or by using HM Revenue and Customs (HMRC)’s Basic PAYE Tools.
Though directions will vary between different payroll softwares, the main thing you’re looking for is an option to ‘change employer details’ followed by a search for any field referencing the Employment Allowance, and a careful read of the options given to you.
Experienced Accountants
To speak with a professional accountant to discuss the new Employment Allowance, and how we help you to take advantage of it, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.
Increase in National Minimum Wage (NMW)
Yesterday Business Secretary Vince Cable announced an above-inflation increase in National Minimum Wage (NMW) rate per hour from £6.31 to £6.50.
Coming into force across the UK on 1 October 2014, the first above-inflation rise (a real-terms cash increase) since 2008 is thought to have had a helping hand from the recommendations and influence of the independent Low Pay Commission (LPC), which earlier this year called upon Mr. Cable to bring in affordable rate rises to help the more than one million lowest-paid workers across the country with their basic, everyday expenses.
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